Colonial First Choice Conservative Pension Scheme - Personal Statement Example

Summary of my advice What did I advice you: I recommend that You to continue to hold a few shares and sell of a few You continue with the AXA Whole Life plan You to use the money of your joint saving account as follows Pay off the debt of your son of $40,000 Let the remaining amount be there in the savings account to meet the emergencies in case they arise You invest the superannuation money in Colonial First Choice Conservative Pension Scheme Why my advice is proper: Having insurance will protect your family in the future. By paying off your sons’ debt will help him as his relation with his wife would ensure. The money in the saving account would continue to earn interest and also meet the emergency amount you needed. The pension scheme would also help you earn regular income and it would ensure your future expenses. Risk in my advice: Investments in shares are exposed to market risk. There is a chance that the instruments value might not increase at all and infact fall. Whats not covered in my advice: it does not cover the general insurance part and matters related to taxation. Fees and commission: The fee for the advice provided is $3000. Of this, FFP will get $1200 and I will receive $1800. Please pay it within 14 days of receiving the SOA. You might also be charged for some of the products recommended by me. Next Steps: to decide if you want to use my advice it is important that you understand it fully and ask me if you have any doubts. Important Information about you Your Goals and Objectives We met for the first time on 2nd October 2009 and you wanted my advice on planning for the retirement and how the estate will pass on to Scott their son. You wanted to maintain an emergency account having at least $15,000 in it. You also told me that: You wanted to know whether you should continue holding your shares or sell them off considering the volatility in the market as you are a balance investor. You wanted to pay the debt of your son Scott of $40,000 before July 2010 so that it doesn’t affect his married life. You wanted to know what you could do with the superannuation money and wanted to receive age pension after 65 years of age. You wanted to know how your asset portfolio should look like considering the fact that you don’t want a very risky portfolio but a one which covers at least inflation. You wanted to know whether the AXA Whole of Life Plan is a good one or not. You wanted to know whether the life/TPD insurance cover is adequate and also whether you should continue with it or not. Your Personal Information Barry Betty Born on 14th April 1947 Born on 7th 1956 Working in a bank and will retire on 30th June 2010 Working full time as a primary school teacher. Have a private health insurance Have a private health insurance Has a life/TPD insurance cover Has a life/TPD and income protection cover Excellent health Excellent Health No family history of illness No family history of illness They have two children named Scott and Annette. Scott is 27 years in age and Annette is 33. Both are married. Scott is their son and has a business in the field of land mowing. Annette is their only girl. They are expecting a grandchild in their family. Your financial information Income statement of Barry Yearly income from salary $60,000 Yearly income as dividend from share $220 Yearly expenses as premium on life cover $2,980 Yearly income after tax $46,218 Income statement of Betty Yearly income from salary $55,000 Yearly income as dividend from share $300 Yearly expenses as premium on life cover and income protection $1,352 Yearly income after tax $43914 Income statement jointly Yearly income from shares held jointly $1,180 Yearly income as interest from joint saving account $1,950 Total yearly income $93,262 (assumed no tax on joint account) Your assets and liabilities Asset Owner Value Liabilities Value House jointly $7, 50,000 Scotts Loan $40,000 Holden Commodore Barry $25,000 Contents of home jointly $50,000 Shares Individual and Jointly $42,500 Savings account jointly $60,000 Superannuation Barry $3, 50,000 Superannuation Betty $2, 80,000 AXA Whole Life Barry $30,000 TDP/life cover Individual and jointly $4, 38,000 Total Assets $20, 25,500 Total Liabilities $40,000 Your Risk Profile All investment carries risk. Some investments are riskier than the others but all investments have certain risks. Risk and return are related. Higher the risk greater is the chance of higher return. As you are a “balanced” investor your appetite for risk is less. You want your investment to grow at the same time the risk should be minimal. So you should have an asset mix which consists of around 40% income asset and 60% growth asset. This will help the return to maximize at the same time reduce the risk and see that the return covers for inflation. What is my advice? I recommend you to continue to hold a few shares and sell of a few. Share Hold/Sell Benefits Harvey Norman Hold Long term capital gain benefit and price appreciating Telstra Sell Return lower than inflation and AXA Hold Higher return and growth potential Westpac Hold Good return and long term capital investment for future I recommend you to use the money of your joint saving account as follows Pay off the debt of your son of $40,000 Let the remaining amount be there in the savings account to meet the emergencies in case they arise. I recommend that you continue with the AXA Whole Life plan as it helps to provide the insurance cover you need. I recommend that on the expiry of TPD/life insurance Barry invest the sum of insurance into fixed income securities as he still has an insurance cover with AXA and Betty continue with the same insurance cover. I recommend Barry to invest the superannuation money in Colonial First Choice Conservative Pension Scheme so that it takes care of his future needs. I recommend that the portfolio for you should consist of both i.e. income assets and growth assets. For income assets invest in CFS Global Credit Income For growth assets invest in Penganga Property securities and CFS Global Share Why my advice is appropriate for you? Holding and selling of share: I recommend you to hold Harvey Norman, AXA and Westpac but sell of Telstra. The three shares which you are holding is giving a higher return as the share prices are escalating. On the other hand if you sell this share you will have to pay capital gain tax and since your income tax is already in the higher side it will increase the burden. Selling those off in a few years would reduce the burden as you will retire and your income fall. I recommend selling Telstra because the dividend is less than the inflation rate and the growth in the price is not high Closing the joint saving account: to pay off the debt of your son Scott you should withdraw a sum of $40,000. The remaining money should be allowed to remain in the savings account as to will help to earn some interest and at the same time fulfill your need for the emergency of $15,000 in the future if it arises. You should keep the money with ING Direct as the interest rate is higher. Continuing with AXA Whole life plan: this would ensure safety of your family in case anything happens to you. Since, this covers for your life and at the same time the return you get when the policy matures is more than surrendering the insurance now. Further, the premium of $600 can be treated as an expense. Expiry of TDP/life covers of Barry: Barry should invest the money which he receives from the life cover when he retires into fixed income securities. This would ensure his future earnings. He can roll over to the accumulation scheme for only 3 years and the cost to do so is high. Continuing of TDT/life covers of Betty: Betty should continue with the same insurance cover as this will protect her family in the future. Even the sum of $312 paid per year can be deducted as an expense. Superannuation to pension scheme: Barry should invest the money in the First Choice Conservative Pension Scheme as the growth rate is high and the risk is moderate. First Choice Conservative Pension Schemes invests the money in Domestic shares 13.14%, international shares 12.4%, cash 30.52%, listed property 4.64%, domestic fixed interest 24.32% and international fixed interest 14.93%. This is preferable for a modest investor as risk is less. (Colonial First Choice Pension Scheme Australian financial services) Portfolio for investment: since, you are an average investor a mixture of growth and fixed income assets would mitigate risk. Investment in CFS Global Credit Income fixed securities as the MER is 0.40% and the return is high compared to this. Investing in CFS Global share is also beneficial as both this product are closely linked and are a growth opportunity for the future. Does my advice have any disadvantage? Paying off your sons’ debt: would make you lose some of the interest payment that could have been earned had the amount been invested in savings account. Holding and selling share: there is still some risk associated with holding the share as the market may react in a different manner so they are subjected to market risk to a certain extent Expiry of Insurance cover: it might put your family at risk since the amount received at maturity had to be foregone. Further it is difficult to judge the amount of insurance cover required since you already have AXA insurance and an high insurance premium would affect your daily expenses. What does my advice doesn’t deal with? Tax issues: since, I am not a tax advisor I can’t give you a lot of ideas about this. You can consult a legal tax consultant for this matter but you will certainly be entitled for deductions for amount paid towards insurance premium. Whether you have enough insurance: since no information regarding general insurance was asked not had been provided even. I can provide you advice on this matter in case you need. Capital Gain tax: since you didn’t ask the capital gain tax I haven’t provided it. I could help you in this matter in case you want and also provide you a contact who could be helpful to you in this regard. Read More